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#cfa #cfa-level-1 #economics #microeconomics #reading-14-demand-and-supply-analysis-consumer-demand #section-3-utility-theory #study-session-4
To determine our consumer’s preferences, suppose we present a choice between bundle a and some bundle a′, which contains more bread but less wine than a. Non-satiation is not helpful to us in this case, so we need to ask the consumer which he prefers. If he strictly prefers a′, then we would remove a little bread and ask again. If he strictly prefers a, then we would add a little bread, and so on. Finally, after a series of adjustments, we could find just the right combination of bread and wine such that the new bundle a′ would be equally satisfying to our consumer as bundle a. That is to say, our consumer would be indifferent between consuming bundle a or bundle a′.
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3. UTILITY THEORY: MODELING PREFERENCES AND TASTES
Note: A given bundle of two goods is represented as a single point, a, in the two-dimensional graph. Non-satiation allows us to rank-order many, but not all, other bundles, relative to a, leaving some questions unanswered. <span>To determine our consumer’s preferences, suppose we present a choice between bundle a and some bundle a′, which contains more bread but less wine than a. Non-satiation is not helpful to us in this case, so we need to ask the consumer which he prefers. If he strictly prefers a′, then we would remove a little bread and ask again. If he strictly prefers a, then we would add a little bread, and so on. Finally, after a series of adjustments, we could find just the right combination of bread and wine such that the new bundle a′ would be equally satisfying to our consumer as bundle a. That is to say, our consumer would be indifferent between consuming bundle a or bundle a′. We would then choose a bundle, say a′′, that contains more wine and less bread than bundle a, and we would again adjust the goods such that the consumer is once again indifferent betwee


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